Your workers’ compensation premium is determined by three things:

  1. Payroll
  2. Class code
  3. Experience modification factor

Payroll dollars and your industry class code are concrete factors that you generally can’t change.

The experience modification factor, however, is something you can actively work to reduce to achieve a better premium.

How is the Experience Modification Factor Calculated?

The experience modification factor for each business is calculated based on a three-year rolling window of its claims history. This timeframe considers the three years prior to the most recent year.

For example, your 2021 experience modification factor will be based on your claims history for 2017 through 2019. The formula that insurance carriers use to calculate the experience modification factor considers both the frequency and the severity of losses incurred against the policy.

A level playing field in terms of the modification factor is a 1.0. This means that your premiums are right on average with your industry. Premiums rise as the experience modification factor increases and fall as it decreases.

Anything below a 1.0 effectively means you are receiving a credit against your policy. In some instances, the modification factor can drop as low as 0.5, meaning you can potentially save up to 50 percent on premiums. Conversely, anything above a 1.0 means you are paying a surcharge on your monthly premiums.

How Does this Affect Your Business?

When working on a workers’ compensation policy, we first make sure you have an accurate number for payroll. We also make sure your industry class code is appropriate for the type of jobs employees are performing. Once we’ve agreed on the details, we start to discuss the experience modification factor and how we can work toward bringing it down.

We start by looking at the health and safety measures in place for your employees and the past workers’ compensation claims your company has made. These are the primary considerations when calculating your experience modification factor.

The less accidents that you have in the workplace, the lower your modification factor will be and the less your overall premiums will be.

It’s very important to us that our clients secure the best premium possible for their business. To encourage this, we have made targeted programs available to help promote health and safety in the workplace.

Strategic Programs and Tools to Lower Your Mod Factor

Risk Management Center

Our Risk Management Center comprises a selection of tools to help businesses improve health and safety in a variety of ways. Essentially, we’ve developed a suite of online services that can be tailored to the needs of each client.

As an example, if we’re seeing a number of back injuries and/or strains related to lifting, we can deploy a training program for employees that teaches them the proper way to lift.

For each client, we look at the losses that they’ve had in the last three years and identify where the problem areas are.

For instance, one company could have a significant number of claims related to slip-and-falls. We would then look closer and determine where those slip-and-falls were occurring and why. Maybe we need to work on cleaning up messes or perhaps get different mats down.

Once we a clear understanding of the risk, we can deploy a program to improve the health and safety in those specific areas.

Splitpoint Report

Another tool we have is our Splitpoint report. This is a “mod analysis” report we can create for our clients. It shows us how each business compares to best-in-class companies in their industry in terms of the modification factor. In other words, it tells us what their ideal modification could be. The difference between our client’s experience modification factor and those of best-in-class companies is what we call our controllable experience modification factor.

Often, our approach is to look at what those best-in-class companies are doing to achieve the ideal factor and develop programs for reducing our client’s modification factor to that effect.

Ongoing Training Programs

We take this proactive approach even further with some clients by developing ongoing training programs. By overseeing these programs throughout the year, we can ensure they are providing value for the client.

When it’s time to underwrite your policy renewal, we translate all the measures taken to mitigate losses and the results we’ve achieved into the best possible narrative.

Most clients think their workers’ compensation premiums are completely determined by the insurance carrier’s calculations. In fact, we often negotiate premiums down using those new measures and results.

A Proactive Approach to Workers’ Compensation

Taking this proactive approach to workers’ compensation policies is one way that we go the extra mile for our clients. We’d love to work with you to take control of your experience modification factor and reduce your premiums if we haven’t already.

Get in touch with us to set up an appointment at your local office. Let’s explore how we can help you achieve the lowest possible workers’ compensation premium for your situation.

Business Insurance




The Workers’ Compensation Experience Modification Factor

The Workers' Compensation Experience Modification Factor